One year on, oil prices sit nearly 20% lower than during CERAWeek 2024, yet there was some optimism around longer-term trends for the broader traditional energy space. While the industry has consistently stressed the importance of continued investment in fossil fuels and their longer-term place in the global energy mix, the mood reflected that this view is being taken more seriously, as energy security has proven to be of critical importance over the last few years. That being said, slower demand growth, oversupply fears, and near-term uncertainty driven by the US administration cast a shadow on broader sentiment in most of our sideline conversations this year.
Expectations for lower prices were more widespread than we were expecting, with some speakers calling out scenarios for sub-$60/bbl oil prices.
While most participants and attendees saw oil prices in a $60-$80/bbl range, we found the more bearish calls surprising. The high-end of the production cost curve has been cited as the longer-term fundamental support for prices, mainly for US shale. With US production reaching maturity and large US oil supply additions likely behind us, will fundamental price support be redefined over the next few years outside of the call on US shale? Over the longer term, we think it is worth exploring what could redefine global marginal production economics down the road.
Energy security taken more seriously: Bullish for industry investment, bearish for the underlying commodity?
Many of the panels and our conversations on the sidelines were focused on production growth outside of the US. In addition to the usual suspects in Latin America, there was plenty of dialogue around making O&G investment more competitive for smaller oil plays, particularly in Asia. Talks revolved around making service costs more competitive in addition to lower royalty costs for producers outside North America. Incentives to localize energy sourcing, while usually overlooked on a global scale, could become more impactful as oil demand growth continues to slow.
Clean energy addition, not transition.
While the narrative isn’t necessarily new, energy security concerns coupled with renewables underperforming their intended impact have strengthened the argument for energy diversification, both in sourcing and type. Motivation seems to be stalling on the global scale, as only 13 of the 195 signatories to the Paris Agreement have submitted their new emissions-cutting plans, known as “nationally determined contributions,” by the February 2025 deadline. This missed benchmark comes as the latest 2024 Emissions Gap Report found that even the outdated Nationally Determined Contributions (NDCs) are not being met by countries, and a continuation of current policies will lead to a warming of 3.1C. The mass exodus of US and Canadian banks from the Net Zero Banking Alliance at the beginning of 2025 saw AUM shrink by 21%, further signaling pullback from multilateral climate agreements.
Near-term uncertainties from the US administration have overwhelmed incrementally positive developments.
Sideline conversations continue to solidify investor expectations regarding IOC production. While there is no deviation from steady supply growth and the focus on shareholder returns, the volatility in US economic policy globally has introduced demand uncertainty that has been seemingly changing on an intraday basis. GDP forecasts are coming down, and demand underperformance is becoming more likely on the current policy trajectory. Bloomberg’s average GDP forecast has fallen from 3.1% to 2.9% since our last forecast update, and demand underperformance and uncertainty tend to have a more outsized impact on price than moderate outperformance on the supply side.
Brian Leisen authored “Post Card from Houston: Pushing Towards Pragmatism,” published on March 16, 2025. For more information on the full report, please contact your RBC representative.
